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re: Fed balance sheet - a question
Posted on 8/17/10 at 8:34 pm to foshizzle
Posted on 8/17/10 at 8:34 pm to foshizzle
quote:
The Federal Reserve doesn't have to have any "hard" assets backing anything, nor does it need to given its mission.
So why do they (until recently maybe?) predominantly buy treasuries? If the value of the asset after they purchase it is not relevant, why not buy ... anything? Trading cards, cabbage patch dolls, collector plates, antiques ... ? I believe what you are saying I just don't understand why they would predominantly buy low risk securities if the fate of that security after they purchase it doesn't matter.
EDIT: My bad, by "hard" assets did you mean things that aren't paper?
All I'm asking is - every year, the fed rebates its profit after dividends to Congress, right? What happens if they instead post a loss?
This post was edited on 8/17/10 at 8:37 pm
0
Posted on 8/17/10 at 8:41 pm to RaysGoodLiquor
quote:
I thought the fed's operating expenses were paid for by the interest it received from its assets.
Well, although from the overall federal government perspective there has been a swap of mortgage bonds for Treasuries, for the Fed this is not the case. The Fed is on the other side of that deal, they own the Treasuries as assets.
The Fed is earning interest from mortgage securities and from Treasuries both. Liabilities are mostly currency and bank deposits.
Posted on 8/18/10 at 2:15 am to foshizzle
quote:
The Fed is earning interest from mortgage securities and from Treasuries both. Liabilities are mostly currency and bank deposits.
And they pay their light bill out of the interest they earn, right? They don't just create new money, they have to get it from their earnings, right?
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